Defying the Odds: What Did Innoson Vehicle Manufacturing (IVM) Do Differently?

In an industry brimming with stories of decline and outright collapse, Innoson’s decision to become an indigenous automaker in spite of the evidence of failure suffered by predecessors amounted to a redefinition of risk-taking in business. After all, since previous attempts by well-known international vehicle manufacturers backed by government to establish automobile assembly plants in Nigeria have failed, how does a little-known indigenous company hope to succeed? The answer, it appears, lies in the approach adopted by IVM’s resourceful founder, Innocent Chukwuma, who reportedly studied the automotive industry for seven years and concentrated on finding ways to achieve cost-efficiency without compromising quality and reliability.

 

For Chukwuma, there was no denying the fact that the Nigerian market, with a huge population of more than 160 million, and a growing economy that has maintained an average of 6-7% growth over the last decade, was capable of generating sufficient demand to sustain profitable local vehicle manufacturing. What seemed to be the problem for most previous automobile manufacturing enterprises in Nigeria, therefore, was the inability to harness resources and manage production in an efficient manner. In spite of the obvious environmental challenges of doing business, particularly manufacturing, in Nigeria, Chukwuma strongly believed that diligent research, innovative thinking, and single-minded determination could help his company engage in profitable local manufacturing in spite of the ostensible odds against the venture.

 

Even in risk-taking, there is need for strategic caution. One of the approaches Innoson adopted in its bid to overcome the failings of its predecessors and successfully run a vehicle manufacturing enterprise in Nigeria was to build vehicles according to demand as opposed to producing in mass numbers to stock and sell. With a modest production capacity of 300 units of different models of motor vehicles monthly, Innoson has produced and sold approximately 30,000 vehicles – mostly on-demand basis – between 2007 and 2013. The strategy of manufacturing to order has helped Innoson avoid the problem associated with over-production and huge inventory, and facilitated a level of efficiency that has helped keep costs within a manageable range.

 

Recognising an Looming Boom

While not unmindful of the decline and failure of previous vehicle manufacturing ventures, Innoson emerged on the strength of a critical evaluation of the political, economic, and social circumstances associated with past and present eras. Previous automobile manufacturers had established their operations during an era dominated by frequent regime change and military rule, with the attendant uncertain economic climate and limited opportunities for growth and expansion. However, with a succession of democratic governments since 1999, and the increased evidence of political stability and economic liberalization, business activities have witnessed unprecedented expansion in various sectors including manufacturing. Accordingly, Innoson’s entry into vehicle manufacturing was partly based on the recognition of an imminent boom in demand for affordable vehicles, especially for mass transit and commercial transportation schemes across Nigeria.

 

Recent policy developments in Nigeria seem to vindicate Innoson’s foresight, as the policy environment now suggests the imminence of a major boom in the demand and production of locally assembled vehicles in Nigeria. In 2013, The Federal Government of Nigeria approved a new policy imposing a 70 percent tariff on the importation of used and new vehicles, with the aim of driving up cost of imported vehicles and promoting greater local production. Since there is no evidence that such a policy was in the offing at the time Chukwuma started the processes leading to the establishment of Innoson Vehicle Manufacturing Company, credit must be given to his ability to think ahead, read the early signs of opportunity, and position his company at a position of advantage to exploit the impending boom.

 

With the encouragement of local manufacturing now a matter of matter of government policy, coupled with the expanding economy and purchasing power, Innoson appears to be at a vantage position to drive rapid development of the local vehicle manufacturing sector. Indeed, the company’s founder recognises that increased production and an expansion of capacity due to higher demand of Innoson vehicles will create industrial clusters comprising allied industries that will feed the company’s sundry production needs. Available statistics indicate that vehicle imports to Nigeria in 2012 alone totalled about 400,000 units, with new vehicles accounting for 100,000 while used vehicles accounted for 300,000 units. The estimated total cost of these imported vehicles was US$3, 451 billion, excluding ancillary costs associated with duties and clearing. In light of the new National Automotive Policy which imposes substantial tariffs on vehicle importation – and essentially discourages meaningful and profitable vehicle imports business – the opportunities for Innoson in the coming years appear significant…

To be continued…

 

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